A reverse triangular merger (also called a reverse subsidiary merger) is an acquisition structure where one company acquires another company using a subsidiary of the acquiring company. In a reverse triangular merger, a merger subsidiary of the acquiring company merges with and into the target company, with the target company surviving the merger. The somewhat counterintuitive result is that the acquired company continues to exist as an entity, but as a wholly-owned subsidiary of the acquiring company. Thus, this structure produces the same result as if the acquiring company had purchased all shares of stock of the acquired company. The reverse triangular merger can be contrasted with the forward triangular merger in which the acquired company ceases to exist.
The following is a diagram of a reverse triangular merger:
The reverse triangular merger is by far the most common merger structure in mergers of publicly traded corporations. It has the advantage of isolating the liabilities of the acquired company in a separate subsidiary (unlike the direct merger), and has the advantage of preserving the acquired company as a corporate entity (unlike the forward triangular merger).
The reverse triangular merger has other advantages too, namely that the assets of the target do not need to be transferred to another entity because they remain with the target. This is important because contracts to which the target is a party will often have anti-assignment clauses that my prevent transfer of the rights under the contract. The issue of whether a reverse triangular law is an assignment by operation of law is uncertain in most states, but recent Delaware precedent has held it is not.
There is no difference between a reverse triangular merger and a reverse subsidiary merger. A reverse triangular merger is a completely different transaction from a reverse merger.
Distinguish: Forward Triangular Merger